U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19285 / June 24, 2005

United States v. Joseph H. Kiser, Criminal No. 05-CR-278D

Former Vari-L CEO Criminally Indicted for Charges Including Securities Fraud

The Securities and Exchange Commission (Commission) announced today that on June 9 Joseph Harold Kiser (Kiser) of Aurora, Colorado, was indicted by a federal grand jury in Denver on six criminal counts, including charges of conspiracy, securities fraud, making false statements in reports filed with the Commission, and perjury. Kiser received a summons to make an initial appearance in U.S. District Court in Denver on June 23.

The indictment charges that from January, 1996 through May, 2000, Kiser, along with co-conspirator David Sherman (Sherman), conspired to inflate revenue artificially in order to meet or exceed market expectations for Vari-L's financial results, and thereby maintain and inflate Vari-L's stock price.

Vari-L, a now defunct company formerly based in Denver, designed, manufactured, and marketed a range of signal processing components used in communications equipment and systems, such as cellular telephones and base stations. Vari-L's common stock traded on Nasdaq.

Kiser held various executive positions at Vari-L, including President, Chief Executive Officer, and Chief Scientific Officer. From about 1985 until 2000, Kiser was Vari-L's Chairman of the Board of Directors. Sherman also held various positions as Vari-L's President, Chief Financial Officer, and Chief Executive Officer. Both Kiser's and Sherman's compensation included performance-based cash bonuses and stock options.

According to the indictment, Kiser and Sherman met regularly to discuss the status of Vari-L's revenue for a given quarter and compare financial performance against forecasted goals. If it appeared that Vari-L would fall short of financial forecasts, which occurred every quarter beginning in early 1996 through at least the third quarter of 1998, Kiser and Sherman would discuss how much fraudulent revenue Vari-L would recognize for a given quarter to meet or exceed the projected results.

After Kiser determined how much false revenue to recognize for a given quarter, Sherman instructed Vari-L's accounting personnel to book the entry. Vari-L claimed the fraudulent revenue by: recording revenue on products that had not been shipped or fully manufactured; falsifying sales orders and booking revenue from fictitious orders; holding open Vari-L's books in order to claim revenue in the current quarter based upon revenue that was earned in the subsequent weeks or months of the next quarter; and making fraudulent entries to company books and records at the end of a quarter, thereby reducing operating expenses through improper capitalization.
The indictment further alleges that Kiser and Sherman knowingly made materially false and misleading statements about Vari-L's financial performance to the public in press releases, quarterly and annual reports to shareholders, and 10-QSB and 10-KSB filings with the Commission. Kiser would then recommend to Vari-L's Compensation Committee that he and Sherman should receive stock options and cash bonuses, based upon the fact that Vari-L consistently met or exceeded projected financial results. Kiser and Sherman enriched themselves by selling Vari-L stock during the height of the fraud.

On September 27, 2001, the Commission instituted and settled administrative proceedings against Kiser for causing violations of the reporting provisions and proxy rules by Vari-L. Kiser was ordered to cease and desist from causing any violation and any future violation of Section 13(b)(2)(B) and 14(a) of the Securities Exchange Act of 1934 and Rules 14a-3 and 14a-9 thereunder. Further, Kiser was ordered to pay disgorgement of $58,000 and prejudgment interest of $4,969. See Release No. 44859 (September 27, 2001).

Sherman was indicted by a federal grand jury in Denver on March 11, 2004, on charges of securities fraud, wire fraud, making false statements in reports filed with the Commission, making false statements to auditors, and keeping false books and records. A Change of Plea Hearing in Sherman's case is scheduled for July 28. On September 27, 2001, the Commission filed a civil complaint against Sherman alleging that Sherman, other Vari-L employees, and Vari-L engaged in a massive financial reporting fraud designed to show consistently increasing revenue and earnings, instead of losses, from 1996 through the quarter ended March 31, 2000. On September 26, 2003, the U.S. District Court of Colorado entered a final judgment of permanent injunction against Sherman pursuant to his consent. For more information, see Litigation Release No. 18622 (March 12, 2004).